Does Filing for Chapter 13 Bankruptcy Mean I Get to Keep My House?

Perhaps the most common question we get about bankruptcy is, “Can I still keep my house?” The answer to this depends on a number of factors. For example, if you have a mortgage and are behind on your payments, filing for bankruptcy will temporarily halt any foreclosure action. And with a Chapter 13 bankruptcy, you may be able to keep your house by seeking court approval of a repayment plan to get current on your debts over a five-year period. But such a repayment plan assumes you have sufficient income to make the necessary monthly payments.

A recent Iowa bankruptcy case, In re Hansen, helps illustrate the difficulties that debtors can face in trying to keep their home via Chapter 13. This case does not involve a homeowner who was delinquent on his mortgage payments. Rather, the debtors–a married couple–owed money to the person who built their home. The builder obtained a state-court judgment of approximately $80,000 against the debtors, which was secured by a lien on the home.

The debtors filed for Chapter 13 bankruptcy. They submitted the required payment plan to the court and the bankruptcy trustee. The debtors proposed paying the creditor back over a period of 10 years, which would go well past the five-year term of the plan itself. The creditor objected to this, arguing it improperly modified his “secured claim” on the house in violation of federal bankruptcy law.

The judge disagreed with the creditor’s assertion. The law in question is designed to protect traditional mortgage lenders. Basically, it states a debtor cannot use bankruptcy to “modify the rights” of a lender holding a “secured claim” in real property. But as the judge explained, a “secured claim” in this context refers to a “consensual lien.” In other words, when you take out a mortgage, you agree the bank has a lien on your house until you repay the loan. In contrast, the creditor here obtained a court judgment against the debtors, thereby creating a “non-consensual lien” against the property, which is not protected by the anti-modification provision of the Bankruptcy Code.

All that said, the judge ultimately declined to approve the debtors’ Chapter 13 plan. The reason for this was simple: The Chapter 13 trustee said the plan was not in the “best interest of the creditors” due to the debtors’ “extremely tight” budget and lack of income. Indeed, the court concluded the creditors would likely receive more money if the debtors were forced to switch to a Chapter 7 bankruptcy and liquidate their assets.

Speak with a Southeast Iowa Bankruptcy Lawyer Today

If you are facing mounting unpaid debts and are looking for options, you need to speak with a Southeast Iowa Chapter 13 bankruptcy attorney as soon as possible. At the Noyes Law Office, P.C., we are happy to review your case and discuss your options. Call us today at 641-472-3226 to speak with a member of our team today.

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